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Surge in Americans Applying to Have Student Debt Canceled – WSJ

I recall when looking for colleges with my children we looked at the courses offered, the alignment with their interests, their overall rankings followed up by campus visits. Never did it cross our minds to ask about salaries after graduation or claims of jobs obtained; that was the students responsibility after four years of preparation.

But forgive me, all that was back in the olden days between 1988 and 1998. The days before everyone was entitled to blame someone else for their decisions and actions.

In the 21st century if you were told or even led to believe you would find a good job paying a good salary after college, but you didn’t you are entitled to have your student loans forgiven (at taxpayers expense). The real truth is that you were probably too gullible, naive or lacking common sense to go to college in the first place. Not to worry, society will pick up the slack for you.

Americans are applying in droves to have their federal student loans forgiven on the grounds they were lied to by their colleges, new figures show.

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Today I have spent sometime trying to compare the earning potential of college graduates vs workers with only a high school diploma. Most of the data I found so far is based on the 2000 census or before and pre-2007 for current wages. You have to search hard to find real current information but if you are a high school student you might stop after one or two search hits that supports you case not realizing that the world changed. (Just like some investment brokers still put out that you can earn 8% average returns – sign me up).

I do believe that a college education has value but I think the government and the colleges both for-profit and non-profit have been over stating that value compare to the tuition cost. Most studies are showing the higher engineering degrees for the wage earning but they still push the business and liberal art degrees and charge the same tuition. I know that there are lawyers who cannot find jobs who took on $200K in debt. We need a good unbiased study that shows that a tech school graduate such as a plumber with little to no debt can earn as much as an art major working retail with $60-80k worth of college debt over their life time in spendable wages for things like housing and cars and not student loan repayments.

I am not favor of forgiving their debt, ever, but I think a little truth in lending and unbiased facts would be nice so that parents and students can make informed decisions. Right now we are all told that everybody must go to college no matter the cost.

“The U.S. government over the last 15 years made a trillion-dollar investment to improve the nation’s workforce, productivity and economy. A big portion of that investment has now turned toxic, with echoes of the housing crisis.

The investment was in “human capital,” or, more specifically, higher education. The government helped finance tens of millions of tuitions as enrollment in U.S. colleges and graduate schools soared 24% from 2002 to 2012, rivaling the higher-education boom of the 1970s. Millions of others attended trade schools that award career certificates.

The government financed a large share of these educations through grants, low-interest loans and loan guarantees. Total outstanding student debt—almost all guaranteed or made directly by the federal government—has quadrupled since 2000 to $1.2 trillion today. The government also spent tens of billions of dollars in grants and tax credits for students.

New research shows a significant chunk of that investment backfired, with millions of students worse off for having gone to school. Many never learned new skills because they dropped out—and now carry debt they are unwilling or unable to repay. ”

BENEFITJACK NOTE – GET THIS SUGGESTION THAT TAXPAYERS THROW GOOD MONEY AFTER BAD IN AN INITIATIVE TO FORGIVE STUDENT LOANS: “Policy makers worry that without a bigger intervention, those borrowers will become trapped for years and will ultimately hurt, rather than help, the nation’s economy. … Treasury Deputy Secretary Sarah Bloom Raskin … “We want to stabilize this generation of student borrowers and revive their prospects for the future. I think students are essential to our future economic growth and contributions to productivity.”

“… Along with the weak job prospects, most of these students are now severely behind on their payments, damaging their credit and limiting their ability to borrow for homes and cars. More than a fifth of all student debt is at least 90 days delinquent, according to the New York Federal Reserve, and federal data show dropouts are three times more likely to default than degree earners.

No group saw its net worth decline more between 2010 and 2013 than college dropouts. The median value of their assets minus debts fell 14% over that period, according to the Federal Reserve’s Survey of Consumer Finances. By comparison, the typical college graduate saw her wealth increase 5%.

In that sense, student debt threatens to widen the gap between society’s haves and have-nots. A disproportionate share of for-profit college students is poor, black and Hispanic. The NBER study showed that half of the 1.4 million for-profit school borrowers were parents.

Ms. Raskin worries these borrowers are at risk of having their financial positions spiral downward due to debt. …

(The Obama Administration) has already put forth an array of programs to help borrowers, including slashing monthly bills by tying payments to incomes, and forgiving some of their debt. But this time they face a different challenge: How to get borrowers to pay anything—even a penny—for an asset they never received.”

Get ready for the writeoff at taxpayer expense. Get your wallet out middle class taxpayers who never attended college, or who attended college and somehow organized their financial priorities to pay for it.

It is not just those who seek to have debt cancelled. Because almost all student debt is underwritten by the federal government (taxpayers), the new “PAYE” – pay as you earn – programs significant increase taxpayer exposure FOR THOSE WHO REPAY THEIR LOANS.

As I learned in a memo from the Dean of Georgetown’s uber-expensive law school, “the President’s “Pay as You Earn” plan could be a game changer for students who graduate with massive debt”. That memo is so embarrassing, so over the top encouraging students with a top tier legal education to stiff taxpayers (mostly middle class folks), that the link to the Dean’s memo has been removed – see: http://scholarships.allfinancialaidadvices.com/georgetown-law-financial-aid-office/

I kept my copy – and sent it on to Dick via email if you want to read it. I wrote the dean of my law school the following:

“… I am a … student at JMLS. You indicated questions about the (debt forgiveness) program should be sent to you. Please feel free to pass these on to the appropriate individual.

I have significant concerns about this program. … Using one of the examples in the Georgetown memo, an individual obtains a Georgetown law degree which has a retail cost of $373,800 (including interest, I assume). The new program means she pays $157,877 over the 20 year loan repayment period (earning a salary that starts at $75,000 and, 20 years from now in
2031, is projected to be $131,500). The “government” forgiveness was estimated to be $215,923. She receives a forgiveness of over 58 % of her cost!

Eight questions:

First, doesn’t linking the structure to a fixed percentage of “discretionary” income disproportionately subsidize private
universities and law schools where tuition, books and fees are significantly (more expensive)?

Second, what is magical about 6 2/3% or 10% of “discretionary” income? Isn’t that arbitrary? Why is that a “reasonable” percentage of “discretionary” income, and only for the first 20 years after graduation? For comparison, for most Americans, real estate investment is their top investment – one which regularly involves an allocation of 25+% of wages for 30 years.

Third, according to the memo, “… discretionary income is defined as the borrower’s adjusted gross income minus 150% of the poverty level for a family of the size of their family. … Under the 2010 reform, all graduates (including those who did NOT go into public service occupations) would be permitted to repay, under IBR, at the rate of 10% (rather than 15%) of discretionary income – thus about 6 2/3% of actual income. …” Doesn’t the use of “discretionary” income which starts with the individual’s “adjusted gross income” skew the value in favor of those who work for employers with generous (perhaps over the top) pension and health care benefits (the value of which is not included in AGI), and similarly, doesn’t the use of AGI skew the results for those individuals who are able to defer the maximum to their 401(k), 403(b), 457 and non-qualified deferred compensation
plans during the 20 year repayment period? What is the rationale for loan forgiveness, at taxpayer expense, for those who do not perform public service? Finally, doesn’t this also encourage individuals who are in the repayment process to forego marriage to avoid incorporating a spouse’s income that would be part of AGI?

Fourth, doesn’t this encourage all Americans, even those who have sufficient assets to cover the cost of an education, to borrow money? Why is there no “wealth” test here? In other words, take a student who after 15 years has accumulated $250,000 – $500,000 or more through diligent saving via tax-qualified or non-qualified deferred compensation plans – is there some reason why the taxpayers should continue to subsidize her college education costs where half of all Americans do not have access to a tax-qualified or non-qualified savings plan other than an Individual Retirement Account?

Fifth, I have two nephews who recently joined the Navy – their father remained in the Navy for 20 years and retired. Is it appropriate to spend the above, significant sums of money for an individual who is among the top 25% of all American wage earners, where, in comparison, each of those nephews will receive GI Bill benefits (which is now contributory) that, after 20 years of service, will have a present value of less than 20% of our example law student?

Sixth, if the individual decides not to work and earn wages for the first 20 years of her post-graduate life (perhaps for those who are self-employed who plow everything back into their business resulting in a minimal AGI), would that mean taxpayers will provide a full college education at no cost to the individual?

Seventh, is this something America can afford as it runs $1+T in annual deficits?

Eighth, and most importantly, is this something America’s taxpayers should subsidize given that she will earn (in excess of) 50% more than a super-majority of all American taxpayers during the 20 years of loan repayment, and that the remainder of the loan will be forgiven coincident with the point where she reaches her peak earning years (45 – 65+)? …”